Art. 10, paragraph 1, at n. 8-bis) and at n. 8-ter) of the Presidential Decree n. 633/1972 establishes the rules for application of VAT to the sale of residential and instrumental properties. Below we also analyze the application of the registration tax for this sale.

Sale of residential buildings

Based on the art. 10 first paragraph, n. 8-bis), of the Presidential Decree n. 633 of 1972, as amended by legislative decree no. 83 of 2012, the transfers of buildings or portions of buildings other than instrumental ones are subject to the "natural" VAT exemption regime, with the exception of the following hypotheses:

1. sales carried out by construction companies or for restoration of the same within 5 years of completion of the construction or intervention;
2. transfers carried out by the same companies even subsequently, in the event that in the relevant deed the transferor has expressly expressed the option for taxation;
3. sales of residential buildings intended for social housing for which the transferor has expressly expressed the option for taxation in the relevant deed.

The option for taxability is, therefore, subjectively limited only to companies constructing or implementing the recovery interventions specifically referred to by the provision. Therefore, sales of residential buildings carried out by different economic operators remain exempt from VAT.

For sales involving residential buildings intended for social housing, VAT taxability on the option of such operations is permitted regardless of the subjective characteristics of the transferor (who, therefore, may be a subject other than the construction or restoration company).

As regards the measurement of the VAT rate, based on n. 127-undecies) of Table A, part III, attached to the Presidential Decree. n. 633 of 1972, the sales of residential buildings (not having the characteristics of luxury homes according to the criteria established by the decree of the Minister of Public Works of 2 August 1969) carried out by construction companies are subject to VAT with application of the rate of 10 percent , without prejudice to the application of the 4 percent rate if the transferee meets the "first home" requirements referred to in note II-bis) of the art. 1 of the tariff, first part, attached to the Presidential Decree. 26 April 1986, n. 131.

The sale concerning a residential building with the characteristics of a luxury home is, however, subject to VAT with application of the ordinary rate of 22 percent.

Sale of instrumental buildings

Sales of instrumental buildings are exempt from VAT with the exception of sales:

• carried out by construction or restoration companies, within five years from the date of completion of the construction or intervention;
• for which in the relevant deed the seller has expressly expressed the option for taxation.

Therefore, the transfers of instrumental buildings that are taxable by law are only those carried out by the company that built or recovered them within five years of completing the works. In all other cases, transfers of instrumental properties are exempt from VAT, without prejudice to the seller's right to opt for taxability in the transfer deed.

The sales of taxable instrumental buildings (by legal obligation or by option) are subject to VAT with application of the rate at the ordinary rate or, in particular cases, at ten percent (see, for example, numbers 127-undecies ) and 127-quinquiesdecies) of table A, part III, attached to Presidential Decree no. 633 of 1972).

Reverse charge for sales of VAT-taxable buildings at the option of the seller

Art. 17, sixth paragraph, letter. a-bis), of the Presidential Decree n. 633 of 1972, establishes the application of the reverse charge mechanism, in addition to the transfer of instrumental buildings taxable by option, also to the transfer of residential buildings taxable by option of the transferor, with the consequent obligation to pay the tax to be paid by the buyer, provided that the latter is a taxable person acting as such.

It should be underlined that the reverse-charge system applies only in the case of an optional VAT taxability regime. Otherwise, in cases of sales of buildings referred to in numbers 8-bis) and 8-ter) of the art. 10 taxable for VAT by law, the tax must be paid by the seller according to the ordinary methods (for example, in the event that the construction company sells a residential building within five years of completing the construction works).

The invoice issued by the seller (without charging the tax and with the indication of the reference rule, i.e. the aforementioned art. 17, sixth paragraph, letter a-bis)) must be integrated by the buyer by applying the tax with the rate envisaged for the operation carried out. Furthermore, based on art. 6, fourth paragraph, Presidential Decree n. 633 of 1972, the payment of a deposit on the price constitutes, for the relevant amount, the moment of carrying out the transfer and, therefore, must be subject to tax according to the regulations in force at the time of payment. It follows that, if the conditions required by the law exist, the VAT relating to the advance on the price must be paid through the reverse charge mechanism.

As regards the methods of paying the tax in the event that the transfer is made by a taxable person at a time prior to the date of completion of the building, it is recalled, preliminarily, that - as clarified with the circular of 1 March 2007 , n. 12/E – the transfer of an unfinished building is excluded from the scope of application of the art. 10, first paragraph, nos. 8-bis) and 8-ter) of the Presidential Decree. n. 633 of 1972, as it is a good that has not yet left the production circuit and whose sale, therefore, must be subject to VAT.

In this case, since there is no hypothesis of optional/optional taxability, the reverse charge mechanism does not apply and the transfer, therefore, is subject to VAT according to the ordinary rules established by the art. 17 of the Presidential Decree: n. 633 of 1972.

Otherwise, the mechanism does not operate:

• when the buyer is a private person (without VAT number);
• in the event of transfer of the property before its completion (i.e. still under construction or renovation - C.M. 22/E/2013).

In this case, in fact, the operation is subject to "mandatory VAT" and must be invoiced using the ordinary methods.

How to exercise the option for VAT taxability

Based on the criteria established by art. 6 of the Presidential Decree n. 633 of 1972, the transfers of real estate are considered to have been carried out at the time of stipulation of the contract or, if before the stipulation the consideration is paid in whole or in part or the invoice is issued, the operation is considered to have been carried out, limited to the amount paid or invoiced, on the date of the invoice or that of payment of the consideration.

As regards the methods of exercising the taxability option, based on the provisions of the new art. 10, first paragraph, nos. 8-bis) and 8-ter) of the Presidential Decree. n. 633 of 1972, it is necessary that this choice is expressed "in the relevant deed".

Consequently, if the regulatory conditions exist, sales contracts in which the transferor has expressly opted for taxability are subject to VAT. The option for the application of the tax must be expressed by the transferor "in the relevant deed". Given this generic reference, it is believed that, in the event that the sale is preceded by a preliminary contract, the option can also be expressed at the preliminary stage. Any advance payments on the price, if due, are subject to VAT and if the conditions set out in the art. 17, sixth paragraph, letter. a-bis), of the Presidential Decree n. 633 of 1972, the tax must be paid through the reverse charge mechanism.

Taking into account the binding effects of the option, the choice for taxability expressed at the preliminary stage must also be considered valid and binding in relation to the VAT regime applicable to the balance due upon stipulation of the definitive contract. In the absence of a preliminary sales contract, if the advance payments on the agreed consideration under the exemption regime have been paid and the option for taxability is expressed at the time of signing the sales contract, the taxable base to be subject to VAT is constituted from the amount due as a balance.

As regards the registration tax, due in proportion to a proportional amount, if the sale concerns buildings for residential purposes, it is necessary, however, to also take into account the amounts already paid as an advance on the price for which this tax is not been paid at the time of payment. Therefore, at the time of the deed, the registration tax must be applied to the value of the property, net of the part of the consideration subject to value added tax.

This principle is also applicable in the event that, upon registration of the preliminary contract for the sale of a residential property, the registration tax has been paid in the proportional amount of 3 percent on the advance payments made. Even in this case, where the balance is subject to VAT, the registration tax of 7 percent must be paid when signing the final contract, calculated on the value of the property net of the part of the consideration subject to VAT. . The tax already paid in relation to the advance payments must be deducted from the registration tax thus determined.

The advance payments and the balance relating to the sale of the property may be subject to different tax treatment even in the event that the advance payment has been paid to the construction or restoration company within 5 years of completion of the works and the deed is , however, stipulated beyond the five-year period.

In this case, in fact, based on art. 10, first paragraph, nos. 8-bis) and 8-ter), of the Presidential Decree: n. 633 of 1972, any advances paid are subject to VAT by law, while the balance to be paid on the deed is subject, in principle, to the natural regime of exemption without prejudice to the option for VAT taxability currently exercised by the transferring company. In the event of exemption, when the definitive contract is signed, the proportional registration tax applies, for residential properties, on a taxable base considered net of the advance payment already subject to VAT.

Registration tax - sale of residential / instrumental buildings

In application of the principle of VAT/registration tax alternative, for the sale of buildings for residential use the registration tax, as well as the mortgage and land registry taxes, are applied on a fixed basis in the case of sales subject to VAT and on a proportional basis in case of sales exempt from VAT, without prejudice to the application of the concessions granted for the purchase of the "first home".

In order to avoid double taxation, if the advance payments are invoiced under the taxable regime by law and the balance is, instead, invoiced tax exempt - as in the case in which the construction or restoration company does not exercise the option for the application of the tax at the time of the deed stipulated after five years from the completion of the works - the proportional registration tax is applied on a taxable base considered net of the advance payments already subject to VAT.

Pursuant to art. 40, paragraph 1, of the Consolidated Law on the Registration Tax referred to in the Presidential Decree. n. 131 of 1986, the sales referred to art. 10, no. 8-ter), of the Presidential Decree n. 633 of 1972.
Consequently, for the sale of instrumental buildings, the registration tax is applied uniformly, in the fixed amount of €168.00 both for operations subject to VAT and for those exempt from the tax.

References:

• Art. 10, paragraph 1, n. 8 of the Presidential Decree 633/1972;
• Revenue Agency Circular 06.28.2013, n. 22/E;
• Revenue Agency Circular 1.03.2007, n. 12/E;
• Revenue Agency Circular 16.11.2006, n. 33/E;
• Revenue Agency Circular 4.08.2006, n. 27/E;